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Regular readers know that ever since 2009, well before the confidence
destroying flash crash of May 2010, Zero Hedge had been advocating that
regular retail investors shun the equity market in its entirety as it
is anything but "fair and efficient" in which frontrunning for a select
few is legal, in which insider trading is permitted for politicians and
is masked as "expert networks" for others, in which the government
itself leaks information to a hand-picked elite of the wealthiest
investors, in which investment banks send out their "huddle" top picks
to "whale" accounts before everyone else gets access, in which hedge
funds form "clubs" and collude in moving the market, in which
millisecond algorithms make instantaneous decisions which regular
investors can never hope to beat, in which daily record volatility
triggers sell limits virtually assuring daytrading losses, and where the
bid/ask spreads for all but the choicest few make the prospect of
breaking even, let alone winning, quite daunting. In short: a rigged casino.
What is gratifying is to see that this warning is permeating an ever
broader cross-section of the retail population with hundreds of billions
in equity fund outflows in the past two years. And yet, some
pathological gamblers still return day after day, in hope of striking it
rich, despite odds which make a slot machine seem like the proverbial
pot of gold at the end of the rainbow. In that regard, we are happy to
present another perspective: this time from a hedge fund insider who
while advocating his support for the OWS movement, explains, in no
uncertain terms, and in a somewhat more detailed and lucid fashion, both
how and why the market is not only broken, but rigged, and why it is
nothing but a wealth extraction mechanism in which the richest slowly
but surely steal the money from everyone else who still trades any
public stock equity.

From Reddit: I work in Wall Street and work in hedge fund analysis. I'm the only person in my office who supports OWS
This is a self-post, so I'm not trying to karma-whore or anything. I
have a message I want to share with anyone who's interested.
I'm writing this in hopes that the OWS movement can have a better
understanding of the hedge fund industry and the financial markets. With
OWS being the zeitgeist of current politics, I think it's important to
know how exactly the hedge funds, along with the financial markets are
destroying the 99%.
Hedge funds. These guys are basically the vehicles of choice for
ultra-rich people to get into the financial markets, besides family
offices and private wealth managers. What are hedge funds? They are
funds that have a 1-5 million deposit minimum, cater to the mega-rich,
and can invest in anything without regulatory restrictions, use leverage
to pump up their exposure by 15x, and pretty much eat up a vast
majority of the industry's profits.
These guys invest in EVERYTHING. Instruments you've heard of -
stocks, bonds, forwards, futures, currencies, and instruments that you,
me, or anyone else have never even heard of, much less know anything
about: commodity future swaptions, FRA/OIS swaps, CLOs, exotic future
options, p-notes, index/commodity/equity exposures, and a huge array of
OTC (over-the-counter) instruments that no regular investor would ever
have access to.
Why I bring this up: the financial markets are rigged. 99% of the
investing public has access to services such as basic brokerages,
401k/IRA's, mutual funds, pension plans, etc. Some of these services,
especially pension funds, will invest into hedge funds, who take an
additional 2 and 20 (meaning 2% of assets plus 20% of capital gains).
What this means is that if you go any of the traditional retail
routes, you are utterly screwed facing off against the hedge funds.
First, you are paying exorbitant fees. Commissions on every stock
trade. Mutual fund managers taking a cut - an annual % cut, as well as a
% per profit cut. If these managers (i.e. pension plans) invest in
another fund, that fund is also taking another % cut. You're down 2% the
minute you invest your money.
Next, if you're doing the investing yourself, you're paying
ridiculous spreads. The bid/ask spread of a stock will cause you to be
down another 2-3% the minute you buy the stock. For example, if you're
buying a share of company at $4.25, you can sell back at only $4.15.
Furthermore, you have absolutely no chance in terms of access to the
best services. Hedge funds have a direct line to investment bank's
institutional brokerage teams - these are the guys that spend day and
night sucking up to hedge funds, trying to get them the best deals at
the cheapest rates. This means that while you're buying stocks and
bonds, hedge funds are getting special rights, warrants, sweetheart
deals, private placement deals, options, bigger discounts on bonds, and
much better bulk commission rates and lower spreads on stocks. If you're
paying 4.25$ for a 4.15$ stock, they are paying something like 4.16$.
And they are eating alive your profits because when the stock goes up to
$4.30, they can activate another warrant to purchase 20m shares at
$4.25, diluting the value of your shares.
Next, you lack information and exposure. You have no idea what is
going on in the market besides what you see on the news - while hedge
funds have analysts working around the clock and a bunch of service
providers who give minute-by-minute analysis of their portfolio
opportunities and weaknesses in all markets with exposures to nearly
everything. Meaning, if there is an opportunity in the real estate
market (i.e. legislation), it might take you weeks to get in - hedge
funds will have gotten in the minute the legislation was passed.
Furthermore, when IPOs come out for companies, hedge funds get top
billing on the primary market shares - which means investment banks are
selling directly to them. Once the secondary market becomes available,
hedge funds are up 15-20% on these investments, sometimes within hours.
Finally, you have no capital compared to these hedge funds. The
people who invest in these hedge funds are not just the 1%, they are the
0.1%. These are the guys with 500million dollar bank accounts and the
ability to do whatever the fuck they want. Hedge funds know this, and
they invest without having to care about whether their clients can pay
the rent or send their kids to college. All of that is irrelevant. Their
sole purpose is to earn money, not to mitigate risk.
What does this all mean? It means the hedge fund industry is making a
gigantic proportion of the profits. The top .1% is earning nearly half
of the profits in the industry, through not just hedge funds, but other
similar vehicles.
The finance industry is a complete scam, designed to funnel money
from the 99% investing public into the hands of the top .1%. Sure, some
of you will make good money, but stastically, the rest of us will lose,
and who is feeding off us? Hedge funds, and the .1%. You have better
odds going to a casino and playing slots, the worst-paying game in the
house, but still better than the stock market.
Also, the government is in bed with the financial industry. Tax
loopholes give hedge funds and other top players the ability to write
off losses and not pay taxes on gains for years at a time. For income
they derive from the hedge fund (profits), they pay only 15%, rather
than the 35% income tax charged to most people earning 80k and above.
Meanwhile, you have to pay taxes for not just your own income but also
capital gains.
The worst part by far is that the government "encourages" you to put
your money into your 401k through 'tax exemptions', which basically puts
your money with the lowest tier of the financial industry - pension
funds, retail wealth managers, and retail asset managers. These guys
have shit strategies like long-only or domestic equity (which means they
only invest in American stocks), and have nowhere near the capability
and reach of hedge funds. These guys are even more likely to lose your
money than you are, and even worse is they will take a 2.35% cut while
doing so. And you get penalized when you try to take your money out
early. How f***ed up is that.
In other words, if you aren't in the .1%, you have no access to the
derivatives markets, you have no access to the special deals that hedge
funds and other wealthy investors get, and you have no access to the
resources, information, strategic services, tax exemptions, and capital
that the top .1% is getting.
If you have any questions about what some of the concepts above mean,
ask and I will try my best to answer. I'm a first-year analyst on wall
street, and based on what I see day in and day out, I support the OWS
movement 100%.
tl;dr: The finance industry funnels money from the masses to the
ultra rich, through vehicles like hedge funds which dominate all of the
financial markets.h/t Scott